World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Friday, February 13, 2009

- certain side effects, including lack of response to stimulis may occur if economy over stimulated for periods exceeding 8 years. Should displacia lasting longer than a decade occur, please consult an economist who understands math and ignore everyone trained in the ways of Freidman or Keynes.

Stimulis – “Because central bankers can’t get enough of your money!”

It’s a sad, sad day for America and for her future. Congress made a decision that when compounded upon prior decisions virtually destroys America as we knew her. No, that is not being over dramatic, that is fact.

Add the numbers up. Here’s how they worked (didn’t work) PRIOR to this bill and the additional trillions Geithner is talking about for bank bailouts. Our deficits are expanding at a dramatic clip and this article, written using the most conservative numbers I could find, is already outdated. The math didn’t work then, and it really doesn’t work now… Death by Numbers.

$787 billion is equal to $2,580 for each 305 million people in America. It represents $4,828 for each of the 163 million tax filers. It is more than an additional $10,000 for my family of four. The numbers are growing exponentially such that the incomes in America can in no way, shape, or fashion even consider paying all the money back. Sorry to keep bringing up reality, but that will not end well – we have past the tipping point quite some time ago. Sad.

Feb. 13 (Bloomberg) -- The U.S. Congress gave final approval to President Barack Obama’s $787 billion economic stimulus package in hopes of wresting the economy out of recession through a mix of tax cuts and federal spending.

The Senate approved the package 60 to 38 with three Republicans joining Democrats in voting “yes.” Earlier today, the House passed the measure 246 to 183 with no Republicans in favor and seven Democrats opposed. The bill, Obama’s first major victory on Capitol Hill, now heads to his desk to be signed into law.

“After all the debate, this legislation can be summed up in one word: Jobs,” said House Speaker Nancy Pelosi, a California Democrat, during today’s floor debate. “The American people need action and they need action now.”

Because of paperwork that needs to be done, the legislation will reach the president’s desk “no earlier than Monday,” White House press secretary Robert Gibbs said.

Democrats predict the plan would save or create 3.5 million jobs. Its biggest item is a $400 payroll tax cut for individuals and $800 for couples. Retirees, disabled veterans and others who don’t pay payroll taxes would get a $250 payment.

Republicans argued that the bill contained too much government spending and, because of that, wouldn’t do enough to boost the economy.

‘Spending, Spending’“I think everyone in this chamber on both sides of the aisle understands we need to act,” said House Minority Leader John Boehner, an Ohio Republican. “But a bill that’s supposed to be about jobs, jobs, jobs has turned into a bill that’s all about spending, spending and spending.”

Businesses won several tax breaks, including faster write- offs for equipment purchased in 2009 and incentives for companies that produce and invest in renewable resources such as solar and wind power. A business tax break pushed by the U.S. Chamber of Commerce would ease near-term tax burdens on companies and buyout firms that restructure debt without entering bankruptcy. The bill also includes an alternative minimum tax cut.

Democratic congressional leaders negotiated the final version of the bill this week after the House and Senate passed their own proposals.

When the House voted on its version last month, it passed 244-188 with no Republicans in support and 11 Democrats in opposition.

60 VotesThe measure needed 60 votes to pass the Senate. The three Republicans voting for the bill in that chamber were Arlen Specter of Pennsylvania and Susan Collins and Olympia Snowe, both of Maine. Senator Edward Kennedy, a Massachusetts Democrats who is battling brain cancer, didn’t vote and one of Minnesota’s Senate seats remains vacant.Representative Allen Boyd of Florida was one of the Democrats who voted for the plan today after opposing the original House proposal. He said lawmakers “have worked hard to make this a better product,” in part by reducing some of the spending the House version had included.

Senator Judd Gregg, the New Hampshire Republican who withdrew yesterday as Obama’s commerce secretary nominee, voted against the plan. In a statement, he called it a “so-called stimulus plan” that “has become sidetracked by misplaced spending and a lack of attention to the true problems facing the nation.”

The stimulus plan would provide a half-trillion dollars for jobless benefits, renewable energy projects, highway construction, food stamps, broadband, Pell college tuition grants, high-speed rail projects and scores of other programs. It would raise the nation’s debt limit to about $12 trillion.

Executive CompensationThe package would restrict executive compensation at all companies receiving assistance from the Treasury Department’s Troubled Asset Relief Program, not just those receiving “exceptional” aid as the Obama administration announced last week. The legislation limits bonuses and other incentive pay at those companies on a sliding scale according to how much federal aid they take.

Bonus restrictions would be imposed on senior executive officers and the next 20 highest paid employees at companies that receive more than $500 million from TARP.

Companies receiving between $250 million and $500 million would face restrictions on bonuses to their senior executive officers and their next 10 highest-paid workers. The limits would apply to the top five employees at companies receiving between $25 million and $250 million.

Other details of what provisions survived negotiations between the House and Senate were still emerging even as the plan headed for congressional passage.

Museums, TheatersLawmakers dropped provisions barring funds from going to museums, arts centers and theaters. A ban on money to casinos, golf courses, zoos and swimming pools was retained. Lawmakers deleted provisions requiring businesses receiving stimulus funding to use E-Verify, a government program used to ensure workers are in the country legally.

The nonpartisan Congressional Budget Office said today the stimulus package would cost $787 billion, rather than $789 billion lawmakers estimated earlier this week. The plan would pump $185 billion into the economy this year and $399 billion next year, the agency said.

“This country faces the greatest crisis that we’ve seen in terms of the economy since the ‘30s,” House Appropriations Committee Chairman David Obey, a Wisconsin Democrat, said as he urged passage of the bill. “The other tool normally available to us is monetary policy in the form of low interest rates through actions of the Federal Reserve. We’ve already fired that bullet - - the only bullet left is fiscal policy.”

Representative Jeb Hensarling, a Texas Republican, said “you cannot borrow and spend your way to prosperity” and that Democrats were aiming to “stimulate big government.”

Democrats released the text of the plan late yesterday, prompting complaints from Republicans they didn’t have enough time to review the legislation before voting on it.

“It is over a thousand pages,” said Representative Tom Price, a Georgia Republican. “It is physically impossible for any member to have read this bill.”

All about jobs? Riiight. Notice how there wasn’t such an uproar over this $800 billion as there was over the TARP money? The psychology of America is changing. People are becoming resigned to the fact that we are going to self-destruct over the numbers.

Closures in Nebraska, Florida, Illinois and Oregon bring the number of bank failures to 13 this year as the financial crisis continues to roll.

By Kenneth Musante, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Four banks folded Friday, bringing the total number of banks to fail this year to 13.

Deposits at Sherman County Bank, based in Loup City, Neb., the first bank in the state to fail since 1990, will be taken over by Heritage Bank, based in Wood River, Neb., according to the Federal Deposit Insurance Corporation.

Meanwhile, accounts held by Riverside Bank of the Gulf Coast based in Cape Coral, Fla., will be assumed by TIB Bank based in Naples, Fla., the FDIC said. It is the second bank to fail in Florida this year and the fourth to go under in that state since the economic crisis unfurled.

Corn Belt Bank and Trust Company, based in Pittsfield, Ill., the third bank to fail in the state since January 2008, was also shuttered by state regulators, and its deposits were turned over to The Carlinville National Bank out of Carlinville, Ill.

Pinnacle Bank, Beaverton, Oregon, was closed by the Oregon Division of Finance and Corporate Securities. The FDIC entered into an agreement with Washington Trust Bank, Spokane, Washington, to assume all of the deposits of Pinnacle Bank.

Customers who banked with Sherman County Bank, Riverside, Corn Belt Bank, or Pinnacle Bank will automatically become customers of the new owners, and will retain their account protection under the FDIC, which insures single accounts up to $250,000, and joint accounts up to $500,000, the government agency said.

Due to the Presidents Day holiday on Monday, Sherman County Bank's four branches, Riverside's nine branches, and Corn Belt Bank's two, will reopen on Tuesday as branches of the new deposit holders, the agency said.

Over the three-day weekend, those customers will be able to use checks, ATMs and debit cards as normal. Customers who have taken out loans from a failed bank should continue to make regular payments, the FDIC said.

Sherman County Bank held assets worth about $129.8 million, and held deposits worth about $85.1 million, as of Feb. 12, the FDIC said. Heritage Bank has agreed to purchase about $21.8 million of Sherman County Bank's assets.

Riverside Bank held assets worth about $539 million, and held deposits worth about $424 million, as of December last year, the FDIC said. TIB Bank will not assume $142.6 million worth of brokered deposits held by Riverside Bank, but agreed to buy $125 million of Riverside's assets.

Corn Belt Bank carried assets worth about $271.8 million, with deposits of $234.4 million, according to the agency. Carlinville National will not take on $92 million of Corn Belt's brokered deposits, but would buy $60.7 million of Corn Belt's assets, the FDIC said.

Pinnacle Bank had total assets of approximately $73 million and total deposits of $64 million. In addition to assuming all of the deposits of the failed bank, including those from brokers, Washington Trust Bank agreed to purchase approximately $72 million in assets at a discount of $7.6 million, the FDIC announced late Friday.

Altogether, the bank failures announced Friday will cost the FDIC about $341.6 million.

The unfolding financial crisis continues to take a toll on banks. If banks continue to fail at a rate of at least one per week, on average, then 2009 could see twice as many failures as in 2008. Last year, 25 banks were closed nationwide, which was the highest annual total since 1993, when 42 banks went under.

Economists expect the number of failed banks to continue rising this year, as the financial crisis plays out and the economic outlook remains dark.

Now the FDIC has a snowball that’s growing larger and larger on their hands. Anybody else see where this is heading?

WASHINGTON — When regulators took over the First National Bank of Nevada last year, they faced a showdown with the Terrible Herbst, the mustachioed cowboy who boasts of being the “best bad man in the West.”

This was no real gunslinger, but the name and logo of a chain of gas stations and convenience stores in Nevada that feature slot machines next to candy and beer.

The family-owned Herbst chain, auditors at the Federal Deposit Insurance Corporation concluded, did not generate enough sales at its Reno-area gas stations to support the repayment of a loan, leaving auditors with three bad choices: Move to take over those stations and put the government in the gambling business. Cut off any flow of additional loan money. Or sell the loan at a steep loss.

The F.D.I.C. faces tough choices like this every day as it struggles to manage $15 billion worth of loans and property left from failed banks. If still-to-be-sold assets from IndyMac Bancorp of California, whose demise last year was the fourth-largest bank failure, are included, the number jumps to $40 billion.

The F.D.I.C. inherited the collection of loans and property after the failure of 25 banks in 2008, compared to just three in 2007. Thirteen more have failed this year, including four on Friday night, and no one doubts that more are on the way.

The F.D.I.C., which insures bank deposits and ultimately has responsibility for liquidating failed banks, is selling hundreds of millions of dollars worth of loans through eBay-like auction sites.

DebtX of Boston and First Financial Network of Oklahoma City, for instance, sell loans at auction to investors who typically pay 5 cents to 85 cents for each dollar of outstanding principal, according to Bliss A, Morris, First Financial’s president. It is unloading hundreds of houses across the country at bargain basement prices.

In November, Lula Smith, 86, of Kansas City, Mo., bought a two-bedroom house across the street from her home for $4,000, one-tenth of its value two years ago.

“I am real satisfied with that price, yes sir,” she said, adding that after about $1,000 in additional costs to repair the house, and some new carpet, her son and daughter-in-law will move in. “It was a nice little deal, indeed.”

And — in the most closely watched tactic — the F.D.I.C. is negotiating a series of billion-dollar deals with private equity partners who will take over huge batches of loans in exchange for a chunk of the sale proceeds.

Even as the solutions to the financial crisis are debated in Congress and among economists, the F.D.I.C., one of the agencies that deals most closely with the nation’s banks, has already been transformed.

The rising tide of foreclosed real estate is so overwhelming that the agency, which had shrunk to a relatively tiny 4,800 employees from as many as 15,000 in the last period of bank meltdowns in the 1990s, is in the midst of a military-scale buildup as it undertakes one of the greatest fire sales of all time.

The agency is frantically calling in retirees and holding job fairs, looking to hire as many as 1,500 people. It has rented a high-rise office building in Irvine, Calif., the new headquarters for a West Coast branch of 450 employees who are wrestling with a real estate crisis in one of the hardest-hit regions. It is also budgeted to pay hundreds of millions of dollars for a small army of contractors to augment its staff. “We are trying to be ready for the inevitable,” said Mitchell L. Glassman, director of the F.D.I.C.’s division of resolutions and receiverships.

Perhaps a moment of silence is fitting for the fallen? Or should we just place “naked” bets on the number of bank failures there will be this year?

Well, we got tired of “Another one Bites the Dust” and last week we had “Dust in the Wind,” perhaps it’s time for these banks and their fiat money to “Ride Across the River to the Other Side?”

Here’s a very interesting video of Michael Greenberger, a University of Maryland Law Professor providing testimony to the House Agriculture Committee. He’s obviously nervous and emotional in front of the cool politicians and bankers. Guess who’s right?

I agree with Mr. Greenberger 100% and would take the derivatives ban a lot further than just “naked” Credit Default Swaps (CDS).

Notice how the banker defends derivatives as providing liquidity. Bull. The only liquidity they provide is in the form of massive fees to him and his fellow bankers. Their comeback is that companies use them to hedge against possible default of the companies they are doing business with. I would say that you shouldn’t be doing business with companies you can’t trust, and you should perform due diligence before you do business with them in the first place. Think of the distortions in the economy that would remove. AND, while I don’t know the ratio (can’t know because no one’s keeping track), I would BET that the number of CDS that are used to speculate far outweigh those even with semi-legitimate reasons. There’s just no need for them whatsoever.

Well now, that was special! Special, but certainly not a key reversal. That is once again why you must look at more than just one aspect of the markets. The candlesticks by themselves said potential bottom, but the internals, sentiment, and certainly the fundamentals said no. That’s why you always need confirmation on a single day or a single piece of information.

Tim Geithner is reminding me of Whimpy, from Popeye. You know, “I’ll gladly pay you Wednesday for some stimulus today!” Are Americans really, I mean really that gullible? I know… there’s absolutely no need to answer that. Mass psychosis… watching what people believe on CNBS is like watching a live unrehearsed skit from the lives of Alice in Wonderland. To bad they don’t teach math there.

Internally the declining issues outnumbered advancing on the NYSE by 9 to 5, but on the Nasdaq there was a slight positive divergence with advancers outnumbering decliners by a slight margin. However, on a volume basis, declining volume was significantly greater than advancing.

Thursday’s action produced a small movement on the McClelland Oscillator and thus we would have expected a large directional movement within the next two days. I don’t think I’d consider that fulfilled after today and thus I would expect that a large movement on Tuesday is probable. Direction? Let’s look at the charts…

Inside the SPX 20 day, 30 minute, busy working man chart, you can see that we closed beneath the red pennant bottom and the fast stochastic on this timeframe is heading down approaching oversold, but the slow is just exiting from the top. The 60 minute timeframe is overbought and has just rolled over and is about to issue a sell signal (hint for Tuesday), while the 10 minute is mid-range:

When we zoom out to the daily we see that yesterday’s hammer was NOT confirmed and we are beneath that pennant bottom. Any further significant movement to the downside and I’m going to have to call the break confirmed. Note that my stochastic indicators here are not oversold and the lower Bollinger is starting to curl down:

The DOW daily also did not confirm yesterday’s Dragon Fly doji. In fact, that just looks bearish. That was the fourth day in a row with a close beneath 8,000, and is the second lowest close of the bear market with the only support beneath this level the November pin lows which are down around 7,449, about 400 points down there. Again we can see the lower Bollinger turning down, and we’re far enough beneath the pennant that we really can’t fool ourselves, that pennant target is now in play (do you really want to know?):

Okay, let’s look at the DOW pennant… While this one looks confirmed, keep in mind that the other indices have not broken down enough to confirm yet. The SPX, and RUT and just beneath their pennant bottoms and the Major market is actually far enough below its pennant to consider it confirmed to. These targets are tragic if they play out, so I’d really like to see all the indices including the NDX break beneath to call it a done deal, and I’d also like to see the Industrials and Transports make new lows together. If all that happens (could happen soon), then those targets are staring us right in the face. On the DOW that pennant target is approximately 3,650:

That’s a scary number, you and I both don’t want to know what that represents, but that’s what that technical pattern is saying unless it turns around NOW. That target area matches my predictions made at the beginning of the year, before this pennant was formed. Why do they match? Because the 4,000 area on the DOW is where the long term uptrend line currently resides - Predictions for 2009... Riders on the Storm! Funny the way the math on technical patterns target support areas. When you see math relationships like that, they are talkin’ to you – are you listening? Don’t shoot the messenger just because I can do simple math!

Now let’s zoom out to a 9 month DOW weekly chart. Again, excuse the working man charts… it’s a little difficult to see there, but this week basically engulfed last week’s positive candle, and makes the past 4 weeks look like a bear flag. The lower Bollinger has curled up, so we’ll be running into that PRIOR to reaching the November lows. Note that the weekly fast stochastic is entering oversold:

Now let’s go to the NDX daily. The rising red lines are the boundaries of a rising wedge that’s been manufactured over the past 3 months and doesn’t have too much farther to go before it is likely to break. This was entered from above and is upsloping, thus I would expect it to normally break in the downward direction:

Next I want to show you the Major Market Index, one of the most inclusive indexes there is. Yesterday it also produced a Dragon Fly doji and today’s candle is just bearish, pushing down the lower Bollinger. The green line is the 50dma and you can see that although we have been in a sideways pattern, the motion of the market is still down:

Here’s a shot of IYR. Note the two hammers in row, and neither one confirmed a reversal. The candle closed beneath the lower Bollinger, that is something to keep an eye on, but it is obviously bending it downward:

Your weekend bonus chart to ponder is the immigration adjusted birth index spanning most of the entire 20th century. I’m in process of writing a demographics article, so I won’t spoil that and just let you draw any conclusions that you can from it:

Trying to come up with some fitting EconoTunes was a little difficult just because I found so much that I liked. I can’t include it all, as I realize that having too much can bog the site down and overwhelm the senses. But, hey, it’s Friday, so let’s rock in the tradition of my working man charts…

Styx - Blue Collar Man:

Excellent tunes, I went looking for Suite Madame Blue and found this arrangement someone put together that is sure to strike you emotionally – one way or the other… I see this both ways, that’s why it’s interesting.

- certain side effects, including lack of response to stimulis may occur if economy over stimulated for periods exceeding 8 years. Should displacia lasting longer than a decade occur, please consult an economist who understands math and ignore everyone trained in the ways of Freidman or Keynes.

Feb. 13 (Bloomberg) -- The stimulus plan emerging from Congress may jolt the U.S. economy in successive waves: relief to cash-strapped consumers, businesses and states, then a job- creating lift from spending on roads, utilities and public transit.

While the package will take time to have an impact, and unemployment is likely to keep rising for months, it will start returning the U.S. toward growth by the end of the year, economists said.

Jobs Turnaround“The hope is, with the stimulus, that we actually stop losing jobs by the end of this year,” said Josh Bivens, of the Economic Policy Institute, a Washington research group aligned with labor unions.

The House of Representatives is scheduled to vote today on the $789 billion stimulus plan that President Barack Obama has said he wants to sign by Feb. 16.

The bill contains a $400 tax reduction for individuals and $800 for families for this year and next, according to House Speaker Nancy Pelosi’s office. Workers will see the relief in the form of a smaller amount of income taxes withheld from their paychecks.

“We can basically change those withholding tables very quickly so people will immediately see some more money going into their bank accounts,” Christina Romer, chairwoman of the White House’s Council of Economic Advisers, said in an interview yesterday on Bloomberg Television.

New MethodMany economists argue that such a delivery method, untested in previous stimulus packages, will be more effective at increasing demand because consumers will be less inclined to save the money or use it to pay debt.

“There is an argument from behavioral economics that people react differently to big lump sums versus these smaller increases in take-home pay they’ll get every paycheck,” said Joel Slemrod, an economist at the University of Michigan in Ann Arbor and an expert on tax policy.

Some economists argue that temporary tax cuts do little to help growth because consumers only alter spending habits based on income changes they believe are permanent. To get them to spend more, the argument goes, tax rates must be lowered for good.

“Temporary tax cuts don’t make people work any harder or get businesses to hire extra workers,” said Chris Edwards, director of tax policy studies at the free-market Cato Institute in Washington. “They don’t change marginal incentives for productive activities.”

Aid to StatesStill, other provisions in the bill will have larger, more measurable effects.

One is money for states, most of which are facing budget deficits. Forty-two states and the District of Columbia have mid- year shortfalls totaling $51 billion this year and projected shortfalls of $94 billion for fiscal 2010, according to the Center on Budget and Policy Priorities in Washington.

Because most states have balanced-budget requirements and plunging tax revenue because of the recession, “they’re in terrible shape,” said Iris Lav, who studies state budget issues at the CBPP. Since the crisis began, 38 states have made or planned workforce cuts, Lav said.

“It’s dire; the things they were going to cut is unbelievable,” she said.

The stimulus bill contains about $54 billion to help states with expenses. That may keep layoffs from happening, Bivens said. “Even if money doesn’t get to a state right away, the promise of it can allow them to avoid some job cuts,” he said.

Jobless BenefitsThe plan has more than $60 billion to increase unemployment benefits and a boost to food-stamp programs, housing assistance programs and other aid for the hardest-hit Americans.

Funding such programs is particularly effective, said Alan Blinder, a Princeton economist and former vice chairman of the Federal Reserve. “These are hand-to-mouth consumers. If you put cash in their hands they’re going to spend it right away,” he said.

The legislation includes $29 billion for highway construction projects; $16 billion for investments in public transit; $7 billion to expand access to broadband; and $11 billion to renovate the nation’s electrical grid. The measure also would provide $5 billion to weatherize low-income homes and $4.5 billion to make federal buildings more energy efficient.

If the aid to states and consumers and the government spending all have the desired effect, there could be 3.5 million additional jobs in the U.S. economy by the fourth quarter of 2010, according to Fair’s model.

All bets are off if credit markets stay frozen, the economists said.

Treasury Secretary Timothy Geithner outlined a plan earlier this week to help remove illiquid assets clogging banks’ balance sheets and restart lending. It’s far from clear that the plan, which investors criticized as short on details, will work.

“We’re fighting a two-front war,” Blinder said. The economy and the financial system need help in tandem because “if we don’t do both, we’re cooked,” he said.

We’re cooked alright. This entire article leaves me shaking my head in disbelief. This “stimulus” is going to save jobs? How? Unemployment is going to stop rising by the end of the year? Why?

Are these the same people who didn’t see the underlying math and the resultant effects? You bet they are. And Obama is now the biggest cheerleader of further wasteful deficit spending there is. I’ve been embarrassed by the bad math for quite some time. Now Obama is embarrassing all Americans and himself by talking about creating 3 or 4 million jobs. What nonsense.

EAST PEORIA, ILL. -- President Obama today repeated the claim we asked about yesterday at the press briefing that Jim Owens, the CEO of Caterpillar, Inc., "said that if Congress passes our plan, this company will be able to rehire some of the folks who were just laid off."

Caterpillar announced 22,000 layoffs last month.

But after the president left the event, Owens said the exact opposite.

Asked if the stimulus package would be able to stop the 22,000 layoffs or not, Owens said, "I think realistically no. The truth is we're going to have more layoffs before we start hiring again"

"It is going to take some time before that stimulus bill" means re-hiring, he said.

DOH! Obama says one thing, and the CEO of Caterpillar says the exact opposite – that’s quite a show…

You can HOPE all you want that huge deficit spending will create or save jobs, but I would contend that’s only possible in a closed system that is not already debt saturated. In a debt saturated economy, money is hoarded or used to pay down debt, not to assume more debt.

The ultimate result of government deficit spending will be a further loss of jobs as the burdens of debt, taxes, and ultimately higher future interest rates will kill future growth.

All future income has already been pulled from the future into the here and now. Once that happens, there’s no pleasant way out – math demands that something give.

I know that everyone doesn’t want to hear that and you want a way out.

There are two ways out: If you wish to keep the present system, which I certainly don’t, then you must force the people/bankers who assumed the risk to default on their debts. Clearing the current debt will allow the system to add more debt in the future so that we can do it all again. Does that sound terrific? I thought not.

How about the other way out? We change the entire system into something more sustainable? That’s completely possible, but people just aren’t desperate enough to act… YET. They will be, when we’re at the Bottom of the 'C'...

The ultimate solution will involve dispensing with central bankers, revisiting the Constitution of the United States, setting goals for society that move it towards a common goal, downsizing government/military, and removing the corporate influence from the system. In other words, we’re not even close, but it’s coming… sooner than most people believe.

Welcome to Friday the 13th! Futures are fading a little just prior to the open, although there is no economic data except for consumer sentiment readings that come out later this morning.

As I look around the news I must have seen the word STIMULUS at least a hundred times. I’ve seen it so much lately that it truly has become like the erectile dysfunction drug ads that are so annoying on the teevee. And since it is so annoying and we see it all the time, here’s the Stimulis ad again!

Stimulis: Because all economies have performance issues:

Supposedly the latest stimulus bill will be voted on today, oh yea! The logic of lowering taxes and spending more when having too much debt is already your problem completely escapes me. That bad math and all those illogical assumptions will one day soon result in the inability to service our debts. When that bomb goes off, I hope you have shelter.

Tech might be under a little pressure today as RIMM was downgraded. The Euro is under pressure too, so keep an eye on the currencies again.

The 5 and 10 minute stochastic oscillators will start the day from overbought territory. I wouldn’t be surprised to see us trade a little lower, but possibly come back up later in the day to complete some type of abc move. The spike yesterday is hard to count from an EW perspective, so I think we have to give it a little time to see.

Some of the technicians were calling yesterday a “key reversal.” NO, it wasn’t a key reversal until it is confirmed. And right now it isn’t. It looked like pure manipulation off of support to me. Real reversals come from deep oversold conditions when the internals are just ugly. That was most certainly NOT the case yesterday.

I wish that I could say that once the latest stimulus bill gets signed that the markets can then move on to do what they are going to do. But the truth is that since this bear market began it has been a constant and never ending bombardment of stimulus and money that we don’t have is just wasted. These actions are piling debt on top of debt in a most wasteful manner. And it’s going to the least deserving people in society.

On that upbeat note, have a good day with your trading; hopefully the game won’t be so wicked today!

Thursday, February 12, 2009

Here’s the “reason” behind the blastoff 1 hour prior to the close. Quick, a show of hands of everyone who believes this will stem the tsunami rolling onto shore!

No, it’s long on ideas, but short on specifics as well as understanding how debt and math work. This is another attempt to socialize the losses. While it sounds as if it will help homeowners, its real goal is to help the banks – they’re the ones who will again benefit.

I can think of many ways to help the PEOPLE more effectively than this. And no, doing a ton of little things will not help, it only makes the math worse. Doing nothing is indeed better than making your debt burden so large that it’s mathematically impossible to recover without national default. Newsflash: the math is already that bad (Death by Numbers).

A program would help struggling borrowers before they default. Feds would use government money to make payments more affordable.

By Tami Luhby, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- The Obama administration is looking at subsidizing the mortgage payments of struggling borrowers before they default, according to sources familiar with the discussions.

If it comes to pass, the program would blaze a new trail in the federal government's foreclosure prevention initiatives. Until now, the efforts have focused on helping those already behind in their payments through interest-rate reductions and other loan modifications. The Bush administration had not committed any money to helping borrowers.

Obama, however, has pledged to spend at least $50 billion to help borrowers in trouble. Treasury Secretary Tim Geithner said Tuesday that the administration would release its plan within a few weeks. He and Housing Secretary Shaun Donovan have been meeting with banks, housing advocates and trade organizations this week to listen to their foreclosure prevention proposals.

Details remain scarce, but at this point the subsidy plan entails having struggling homeowners take an affordability test and undergo a re-appraisal to see if they are eligible. The subsidy would allow servicers to adjust the loan terms without having the mortgage's investors take a loss, which should make them more open to the loan modification.

Assisting borrowers before they default would help stop the wave of foreclosures, which are estimated to top two million this year. That, in turn, will help stabilize home prices."This will help put a floor on home values," said one person familiar with the negotiations.

Obama's plan is also likely to include ramping up the streamlining of modifications for borrowers already in default. Already, several banks and Fannie Mae and Freddie Mac are working with homeowners to make their monthly payments more affordable by reducing interest rates, lengthening loan terms and deferring principal to the end of the loan.

Stocks on Wall Street reversed early losses after reports of the plan began to surface.Meanwhile, lawmakers and regulators are asking financial institutions to halt foreclosures until Geithner unveils his plan. Rep. Barney Frank, D-Mass., said that 95% of banks should put a temporary moratorium in place.

Foreclosure filings - default notices, auction sale notices and bank repossessions - continued to climb in January, though at a slower pace than the month before, according to RealtyTrac. That was still 18% higher than in January 2008.

Lenders repossessed 66,777 homes in January. A total of 1,081,395 homes have been lost to foreclosure since the housing crisis hit back in August 2007.

Barney Frank (and for that matter 99% of government) understands nothing about the current economic situation and how to solve it.

There is no free lunch, economics is underpinned with math. While you can use taxpayer money to fund a buy down of someone else’s mortgage, you still have the obligation, it has just become a socialized obligation. Too many socialized obligations will eventually lead to national default.

Inflating debt away does not work either - you simply deflate away your future purchasing power, thus paying back the debt in other ways. All debts get repaid with interest in one way or the other, or they are defaulted upon. The bankers who issued and leveraged up the debt should be forced to default themselves for the good of our country before our country is forced to default entirely.

Bankruptcy laws need to be changed back so that individuals can default on debts too, just like companies who are able to do so through chapter 7 proceedings.

Home prices need to come down, and the misplaced debt needs to be defaulted by those who hold it. There has been no proposal that I’m aware of that begins to chisel down the debt via a default process. That has to happen to keep the present system going and to have any chance at future growth.

The General clearly sees his battle lines and was wise enough to protect his troops today as we approached a key trenchline that the bulls had to defend. He understands that he must always have enough troops left following one battle to fight the next. So he builds up his defenses, and watches the battle for his next move.

If you’re like me and it’s been awhile since you’ve studied your early Twentieth Century French war history, then here’s a link to Wikipedia with a fascinating description of exactly what the Maginot Line was. Be sure to scroll down to the bottom and look at the maps and historic pics.

Give the bulls their credit. They stepped up and defended 800 once again by initiating a high volume straight up charge into the close. The short term momentum the bears had off the Monday high was broken and I've projected out what could be the micro degree wave 2 for this move. After 2 more precise pins off the bottom of my wave 3 channel I now see those set of trenchlines as being even more important going forward. I am going to look to redeploy bear troops I covered near the top of the yellow channel if I get the chance.

Despite the bulls valiant end of day charge I think it could all have been part of the master plan Trojan Horse trap the bears have been laying down for over 2 years. I included a couple of charts of the VIX demonstrating the count and pattern I think may be in play there and I'll be damned if that doesn't look like a stick figure horse. The key to pay attention to is the VIX triangle. Until the bulls manage to push the VIX back under 38 you need to be very cautious and short-term with any bull positions. The breakout from the horse (wave 4 triangle) and bull slaughter could happen at anytime. If we are set to break 800 my guess is it will happen suddenly with no warning on a gap down type of action as that is usually how major breaks occur. Expect the bears to spring out of the VIX horse at the same time making it expensive to buy any protection for the next leg down.

In order for the bulls to prove this is more than just a minor correction off of the Monday high, they will need to first get back above the 848 pivot and 2nd take out new highs. Being that this is a 2 it is possible and some would say likely it will be a powerful retrace that at some point tests the bears resolve that the first move was real.

So many song choices to describe this day… let’s see, there was Gasbagarino on CNBS breaking the story of how Goldman Sachs held secret meetings over what to “do about” Geithner. Now that inspires a little Rush music, “Fly By Night” comes to mind! Ha, it seems that Geithner wasn’t born and raised in the Goldman fold, that’s too bad. They’re going to have to do something to see if they can’t get another one of their boys in the Secretary Treasurer spot – hey, even though Geithner is a near clone, he’s not acting fast enough to protect their interests.

No, Goldman is still pulling all the strings. Just look at that market action. Ran right into the WALL that is the 805 support area while looking bearish as can be… and within just 5 minutes of hitting that critical support level, BAM, out comes word that more billions are going to be spent to prevent foreclosures! Ha, ha – those who were caught shorting into the abyss without a hedge were once again sent to SCHOOL courtesy of the boys pulling the strings. The currency markets were giving clues, and again the retail investor gets to donate his fiat to the Crime of the Century.

So there you are, in the shoes of a retail investor when this news breaks… one hour prior to the close, never after hours for news like this: Is it for real? How big of a program? Will it be effective?

Of course the big money string pullers are the ones who have written the documents and pushed for their passage. Thus, at just the right moment (805 support on the SPX and 1 hour to the close), they are cocked, loaded, and KNOW just what to do. Am I making that seem too much like a conspiracy game? Well, it’s the truth, ignore it or go watch Cramer if you so choose, but that’s the game. And if you don’t know the house rules, then you shouldn’t be playing in this Wicked Game (another appropriate song title).

But if you were following our market thread then you know that a breakdown of the last flag of the day was calling for us to reach 807. And if you could have been listening (you can) to Doc and I call the shots on instant messenger, then you would know that we began taking profits and covering our positions right then and there. We’ve played this wicked game before.

And on this day where strings were pulled, the DOW was down 240 points but recovered all of it to close the day down 6 points. The S&P was up .2%, the NDX was up, down, up and finished up 1.3%, while the RUT finished up .55%. Despite the ramp, the XLF finished down 1.3%.

It was another strange day internally. Declining issues narrowly outnumbered advancing issues on the NYSE, but it was the other way around on the Nasdaq. Share volume was slightly negative on the NYSE but nearly 2 to 1 on the Nasdaq. The number of new lows expanded while the SPX and NDX finished green. No, they are NOT anywhere near capitulation low numbers, keep that in mind when I show you what look like potential capitulation bottom candlesticks. No, I don’t think the world was saved with this latest announcement, but I don’t have all the details yet. The government trying to catch homeowners before they’re in trouble sure sounds terrific, but how about not letting home prices get so out of control to begin with? Oh, and how about letting them correct back to levels that are affordable with current incomes, and forcing those who pushed the bad debt out there to eat it?

Okay, on to the charts…

Let’s start with the VIX. Here’s a 3 month chart, the red lines are the wedge boundaries, with the upper red line the trendline from the highs. You can see that we jumped the 50dma and pinned that downtrend line but rejected hard off it on that perfectly timed announcement. Got to laugh over that one… it sent the VIX plummeting down more than 7% in minutes, and once again it failed to stay above the 46 level:

Next, let’s look inside the SPX at a 10 minute, 10 day chart. Overall, it looks like there’s a Head & Shoulder pattern with a broken neckline and a retest. That neckline just happens to be the pennant bottom, and yes, we were sticking our toe into the abyss. Now they come out with a “detail” and the market quickly pulled its toe back in at the last minute as you can see. That created a W formation which may or may not be bullish. Note that the 10 minute stochastic is overbought. The 30 minute is nearly overbought and the 60 is mid-range:

Now let’s look at the SPX daily. Nice, perfect touch of the lower Bollinger band and rocket shot back up to create a hammer. Note that the head of the hammer is occluded and is just above the pennant bottom. Still showing a sell signal on the daily stochastic with room:

Now let’s look at the DOW daily. We spent most of the day beneath the bottom Bollinger and then jumped back up to where we opened and created that Dragon Fly candlestick.

What do you call that candlestick? It’s a doji that is referred to as a “dragon fly.” Here’s what StockCharts.com says about Dragon Flys:

Dragon Fly doji:

Dragon fly doji form when the open, high and close are equal and the low creates a long lower shadow. The resulting candlestick looks like a "T" with a long lower shadow and no upper shadow. Dragon fly doji indicate that sellers dominated trading and drove prices lower during the session. By the end of the session, buyers resurfaced and pushed prices back to the opening level and the session high.

The reversal implications of a dragon fly doji depend on previous price action and future confirmation. The long lower shadow provides evidence of buying pressure, but the low indicates that plenty of sellers still loom. After a long downtrend, long black candlestick, or at support, a dragon fly doji could signal a potential bullish reversal or bottom. After a long uptrend, long white candlestick or at resistance, the long lower shadow could foreshadow a potential bearish reversal or top. Bearish or bullish confirmation is required for both situations.

So, because it is at the end of a decline, it could be a bottom reversal, but we need to have follow through tomorrow to confirm the reversal.

And when I look at the DIA, I don’t see the same Dragon Fly, I see a large headed hammer on top of the lower Bollinger. It too, however, can be a reversal indicator, but needs confirmation:

And here’s IYR. I showed this chart last night and pointed out the shadowed hammer that is highlighted. Today we got a big red hammer, again, right on the lower Bollinger. Another potential reversal indicator that needs confirmation:

Yet another hammer belongs to the Transports – same deal:

And, to follow up on the put/call ratio, you can see that it’s in neutral ground, NOT in the territory of major bottoms, or tops:

Finally, here is a series of Point & Figure charts that tripped bearish targets today because of the earlier technical breakdown. Once triggered, these targets remain valid unless an upside breakout triggers a reversal. Note that we have received numerous reversals since being in this sideways pattern – that’s what they do:

DOW:

S&P:

RUT:

Wilshire:

OIL:

IYR:

If you could write a script on how to frustrate the largest number of investors in a market place, I’m sure it would follow the sequence that’s been created by the market puppeteers and government incompetents. If you’re being whipsawed by their actions, keep in mind that’s the market’s goal – to separate you from your money. It’s all a truly wicked game…

Chris Isaak – Wicked Game:

And for you younger guys, here’s the HIM version…

HIM – Wicked Game:

Vote for your favorite Wicked Game version below:

HIM = “Interesting”

Chris Isaak = “Cool”

Bet you can’t guess my bias (lol)! I’ll take “funny” to mean that Nate’s just full of it! It’s okay, take out your frustrations on Somebody Like Me…

Feb. 12 (Bloomberg) -- The Federal Reserve Bank of New York is in talks with at least four firms to expand the network of dealers that underwrite government-bond auctions as the U.S. prepares to sell more than $2 trillion in debt this year.

MF Global Ltd. and Nomura Securities International Inc. are in discussions to join the 16 so-called primary dealers that trade directly with the central bank and are required to bid at auctions, officials at the companies said. RBC Capital Markets, the investment-banking arm of Canada’s biggest bank, and Jefferies & Co., a brokerage for institutional investors, are in negotiations, according to people familiar with the process.

Treasury Department and Fed officials want to ensure there are enough firms bidding at auctions to keep borrowing costs low after the total number of dealers dropped last year to the lowest amount since the network was formalized in 1960. The Treasury Borrowing Advisory Committee, a market group that works with the central bank, wrote in a memo released Feb. 4 that more dealers would reduce “the possibility of an undersubscribed auction.”

“With the contraction in primary dealers in the marketplace over the past year, clearly there’s a need to replace some of them, especially with the increased issuance coming out of the Treasury,” said Donald Galante, a senior vice president in New York at MF Global, which he said is in talks with the central bank about a dealership position.

Auction TailsNomura, a unit of Japan’s largest securities firm, has applied to the Fed, said Ralph Piscitelli, a New York-based spokesman for the firm.

The collapse of Lehman Brothers Holdings Inc. and the disappearance of Bear Stearns Cos. and Countrywide Securities Corp. in mergers in the past year has reduced liquidity and removed bidders as some auctions have doubled in size. The Fed said yesterday that Merrill Lynch & Co. was no longer a dealer.

Data from Stone & McCarthy Research Associates in Skillman, New Jersey, show that yields on 10-year notes sold in 2008 through August averaged 1 basis point higher than in pre-auction trading, compared with no difference in 2007. In the three years before 2007, such sales drew a yield just below the pre-auction rate. One basis point, or 0.01 percentage point, spread over $2.5 trillion represents $250 million in annual interest.

Open Market OperationsAn economic stimulus bill is headed for passage in Congress by the end of this week after lawmakers agreed on a $789 billion plan that aims to stem the recession through a mix of government spending and tax cuts.

To help pay for the plan the Treasury will likely borrow a record $2.5 trillion this fiscal year ending Sept. 30, almost triple the $892 billion in notes and bonds sold in fiscal 2008, according to Goldman Sachs Group Inc. The New York-based firm is one of the 16 primary dealers.

This week, the Treasury is selling $187 billion of bills, notes and bonds.

Primary dealers serve as counterparties in open market operations, the central bank’s mechanism for maintaining its target rate for overnight loans between banks. Primary dealers also are expected to bid when the Treasury sells bills, notes and bonds. The designation is coveted by some firms because central banks and certain pension and endowment funds will only do business with operations that have it.

Dealer DeparturesFirms exited the dealership business beginning in the 1990s as the large number of dealers and the increased transparency of electronic trading reduced the spread between offers to buy and sell debt, curtailing the profitability of trading. The number of dealers peaked at 46 in 1988.

Nomura was a primary dealer from 1986 through November 2007, when it cut 400 jobs in the U.S. after its first quarterly pretax loss in four years, following a $656 million loss on U.S. home loans.

Lehman Brothers filed for bankruptcy on Sept. 15, and shareholders of Bear Stearns were nearly wiped out when the firm agreed to be acquired by JPMorgan Chase & Co. on March 16 after the Fed committed $29 billion in financing to facilitate the transaction.

With the departure of those firms, and Merrill Lynch’s purchase by Bank of America Corp. on Sept. 14, the Treasury market began to suffer from more frequent and persistent episodes of illiquidity, traders and investors said.

Widening SpreadsThat has produced “a wider bid-offer” spread, said Tom di Galoma, managing director of U.S. government bonds at Jefferies. “There’s money to be made in Treasuries. There’s dislocations in the government bond market that we probably haven’t seen since probably the early 1980s.”

The last time the government added more than one firm to its roster of primary dealers was 1988, when three firms joined. Cantor Fitzgerald & Co. was the last new dealer in August 2006.

From 1970 through 1988, as the U.S. budget deficit increased to $155.2 billion from $2.8 billion, the number of primary dealers also rose, to 46 from 20. Obama has projected a deficit of more than $1 trillion this fiscal year.

This is hilarious. To think that adding primary dealers will increase demand for treasuries is ridiculous. So you have more outlets to flood the world with your debt, how does that accomplish anything besides ENRICHENING your pals?

The central banker’s plan is clear. They want to reinflate all bubbles and continue to issue as much debt as they can. That’s how they make their money. But making money is EASY, and requires NO EFFORT. What no one in Washington is acknowledging is the simple fact that more debt cannot be pressed into the economy unless there is more ability to service that debt.

The central bankers are adding NO VALUE to society, they are simply creating misallocated resources and profiting from it. I’ll restate that the central bankers do not care who defaults on the debt as long as it’s not them.

It’s time.

Time to break up the cartel and send them packing. If we don’t, then they are going to have more debt based solutions for us, thus enslaving future generations and controlling the world’s natural, labor, and mental resources.

Below is a chart from that article showing the distribution of bonds… gee, if that looks like a pyramid, that's because it is one. More and more investors are required to keep the payments flowing to the old investors. Pyramid schemes collapse when new money stops coming in. If you run a pyramid scheme, btw, you will be thrown in jail – same thing as a Ponzi scheme that requires never ending “investments.”